A new chapter for Chipotle

DENVER — Nachos, milkshakes and avocado tostadas may be coming to Chipotle Mexican Grill restaurants. Watch for $2 tacos and similar deals during non-peak hours, too.

Brian R. Niccol, the newly installed chief executive officer, laid out a refreshed corporate strategy for the burrito chain during a special investor call on June 27. Menu innovation is a key piece of Chipotle’s next chapter.

“We think about menu innovation in four key ways,” Mr. Niccol said. “No. 1, what our customers tell us they want, like nachos and quesadillas we’re experimenting with in a test kitchen; No. 2, items our customers tell us they want us to bring back, like chorizo; No. 3, new items that can be unique to Chipotle like the frozen Mexican chocolate milkshake and the avocado tostada that are also in the test kitchen; and finally, No. 4, celebrating existing items that are already in our restaurants.”

An important consideration for any new menu item is its impact on operations and throughput, he said.

“What we’ve seen is there are some menu items that we believe have a high probability of having no impact on throughput,” he said. “There are other menu items that are going to come with the requirement of probably some equipment investment and a real understanding of how do we tweak the process if we wanted to be able to maintain the same level throughput that we have today.”

He said the company will build a menu innovation pipeline using a “stage-gate” process to test, learn and iterate before rolling out a new initiative.

“You’ll begin to see more tests in the second half of this year, and you can expect relevant menu news in the coming quarters,” Mr. Niccol said.

Since joining the company as c.e.o. in March, the former Taco Bell head said he has identified opportunities to transform Chipotle's business model.

“There is a lack of discipline around priorities, process and accountability, and we were not sufficiently results focused, which made us reactive and hampered execution,” Mr. Niccol said. “I found skills gaps in many areas and insufficient data for decision making that have held us back from reaching our potential. There is no validated menu innovation pipeline, a general lack of customer understanding and no real process for scaling and commercializing innovation.

“And as you’ve heard me say before, the brand had been silent and lost some of its cultural relevance. I found that our marketing dollars had been inefficiently allocated, and we are working quickly to correct that. And lastly, in our restaurants, our throughput remains below potential, and we need to move consumers through the line more quickly and deploy technology to help us do that.”

One initiative designed to improve the customer experience is the installation of new digital pickup shelves in select restaurants for customers who order and pay using a mobile app. At a location in downtown Denver, the addition of a digital pickup window near the register led to a double-digit increase in digital sales, Mr. Niccol said.

“Not only did it provide a significantly faster and more convenient mobile order and pickup experience, but it served as in-store marketing that raised awareness among our customers standing in line,” Mr. Niccol said. “There’s a big opportunity across all of our restaurants because over half of our customers aren’t even aware that you can order ahead for pickup at Chipotle.”

“Combine that with then providing some value that matches up with a daypart like the happy hour, which matches more of like a snacking occasion, I think, then we have to provide the right value equation for a snacking occasion between the hours of 3 to 5 p.m.,” he said. “So those are our lead-in ideas. And then, obviously, the key piece of the puzzle is always understanding our price equation as well. And what will be important is we’ll continue to make sure we understand how consumers are interacting with the menu and where we see opportunities to enhance our value proposition. We will do it in a smart fashion.”

Along with the changes, Chipotle is relocating its headquarters to Southern California from Denver in the fourth quarter of the current fiscal year.

“We’re going to be building more marketing, more digital, more menu, data analytics, varying areas of expertise, and we think we have the ability to really transform the organization in a faster fashion by relocating the company,” Mr. Niccol said. “And there’s lots of talent on the West coast and across the entire country that, frankly, wants to be a part of the Chipotle journey.”

Non-recurring charges related to the moving of offices, restructuring of the organization and the closing of underperforming restaurants are expected to be in the range of $115 million to $135 million.